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Pennsylvania Ruling Brings Ambiguity

October 6, 2017

The
American Oil & Gas Reporter

HARRISBURG,
PA.–The Pennsylvania Supreme Court’s decision in Pennsylvania Environmental
Defense Foundation (PEDF) v. Commonwealth has upended a longstanding
interpretation of an environmental provision in the state’s constitution, but
oil and gas representatives indicate no one is certain yet of the implications
of the June 20 ruling, particularly regarding development of privately-held oil
and gas resources.

In the
meantime, though, the new construal of the constitution already is being
employed to challenge oil and gas activity, PIOGA warns.

ERA Interpretation

At issue
in the PEDF case was Pennsylvania’s Oil and Gas Lease Fund, which holds all
rents and royalties from oil and gas leases on state-owned land. By law, the
fund is to be used by the Department of Conservation and Natural Resources
exclusively for conservation, recreation, dams or flood control, Babst Calland
attorneys Kevin Garber and Blaine Lucas explain in PIOGA’s newsletter.
Beginning in 2009 as part of the state budget process, the Pennsylvania General
Assembly made changes to Sections 1602-E and 1603-E of the Pennsylvania Fiscal
Code, transferring control over royalties from oil and gas leases from DCNR to
the legislature and requiring that there could be no expenditures of royalties
from the lease fund unless the general assembly transferred that money to the
general fund.

In 2012,
the attorneys recount, PEDF filed a challenge in Pennsylvania Commonwealth
Court to § 1602-E and 1603-E and the appropriation of money from the leases,
among other things. The basis of the legal action was the Pennsylvania Supreme
Court’s December 2013 plurality opinion in Robinson Township v. Commonwealth,
particularly its reading of Article I, § 27 of the Pennsylvania Constitution,
commonly known as the Environmental Rights Amendment (ERA), which states: “The
people have a right to clean air, pure water, and to the preservation of the
natural, scenic, historic and esthetic values of the environment.
Pennsylvania’s public natural resources are the common property of all the
people, including generations yet to come. As trustee of these resources, the
commonwealth shall conserve and maintain them for the benefit of all the
people.”

The
Commonwealth Court determined that the plurality opinion was not controlling
and found that neither the fiscal code provisions nor the appropriations by the
general assembly violated the ERA, and PEDF appealed to the Pennsylvania
Supreme Court. The high court heard oral arguments on two issues: the proper
standards for judicial review of government action and legislation under the
ERA; and the constitutionality of § 1602-E and 1063-E and the general
assembly’s transfers and appropriations from the lease fund under the ERA.

According
to the Babst Calland authors, since 1973, courts have used a three-part
balancing test, set out by the Commonwealth Court in Payne v. Kassab, to
analyze constitutional challenges brought under the ERA. That view began to
change with the challenge to Pennsylvania’s updated oil and gas law, Act 13 of
2012, in Robinson Township.

In the
2013 decision commonly referred to as Robinson II, three Supreme Court
justices “strongly criticized the three-part Payne v. Kassab balancing
test,” Garber and Lucas explain. “However, the Robinson II opinion was a
plurality, and courts have subsequently treated the plurality opinion as
persuasive only, including the Commonwealth Court in PEDF.”

Commonwealth
Duties

A
majority opinion in PEDF adopted the Robinson II plurality view and
rejected the Payne v. Kassab test as the standard for analyzing
challenges under the ERA, finding that “the proper standard of judicial review
lies in the text of Article I, § 27 itself as well as the underlying principles
of Pennsylvania trust law in effect at the time of its enactment.” The Supreme
Court went on to more fully develop a new standard in the context of PEDF’s
challenge to legislative action, Garber and Lucas explain, and in doing so
relied on the three-justice plurality decision in Robinson II. A new
majority of the court this time found that the text of the ERA grants citizens
of the commonwealth two separate rights:

• “Clean
air and pure water, and to the preservation of natural, scenic, historic and
esthetic values of the environment;” and

• “Common
ownership by the people, including future generations, of Pennsylvania’s public
natural resources.”

In its
discussion of the second right granted under the ERA, the Supreme Court also
found that the ERA established a public trust, with Pennsylvania’s natural
resources as the corpus of that trust and the commonwealth as the trustee. The
trustee obligation is vested in “all agencies and entities of commonwealth
government, both statewide and local,” and the people are the named
beneficiaries of the trust.

According
to Garber and Lucas, relying again on the Robinson II plurality, the
court reiterated that this trust requires the government to “conserve and
maintain the corpus of the trust” and that as trustee, the commonwealth–that
is, through “all agencies and entities of commonwealth government, both
statewide and local,”– has duty to act “with prudence, loyalty and
impartiality” toward the corpus of the trust. The court found that the trust
places on basic duties on the commonwealth, to:

•
“Prohibit the degradation, diminution, and depletion” of public natural
resources; and

• “Act
affirmatively via legislation to protect the environment.”

What
Happens Now?

According
to PIOGA Vice President & General Counsel Kevin Moody, the Supreme Court
held that any revenues–specifically royalties–derived from the sale of public
natural resources, such as the natural gas underlying state-owned lands leased
for production, are held in trust and may be expended only to conserve and
maintain Pennsylvania’s public natural resources. The court held that §1602-E
and 1603-E of the 2009 fiscal code amendments and the general assembly’s
transfers/ appropriations from the Oil and Gas Lease Fund were
unconstitutional.

The court
also remanded the case to the Commonwealth Court for a determination whether
the rental and bonus payments constitute revenues from the sale of the
Pennsylvania’s natural gas and thus remain part of the so-called public trust.

“That
determination will, in my opinion, be secondary to what the Commonwealth Court
determines constitutes ‘conserving and maintaining Pennsylvania’s public
natural resources,’” Moody continues, “because about two weeks after the
decision, PEDF asked the Commonwealth Court to determine that the $65 million
appropriations in the 2017-18 budget bill the governor allowed to become
effective without his signature from the lease fund to DCNR for state park and
forest are unconstitutional by reason of the PEDF decision.”

Moody
opines that the full consequences of the decision “will be uncertain and
unknown for quite some time, but one thing is certain–the consequences will be
far-reaching.”

Already,
he observes, the decision is being used in a variety of circumstances. For
example, the ERA was cited in an appeal filed with the Pennsylvania
Environmental Hearing Board of the routine issuance of a permit by the
Department of Environmental Protection for spreading brine from conventional
wells as a dust suppressant on municipal dirt roads.

Additionally,
published reports indicate, the environmental group PennFuture has asked
Allegheny County how it intends to spend the estimated $450 million in
royalties expected to be paid over two decades for leasing natural gas rights
under Pittsburgh International Airport and Allegheny County Airport and the
more than $50 million anticipated from leasing beneath a county park. Officials
previously have indicated the money will be used to promote economic
development, reducing airline fees, upgrading park facilities and funding
capital projects, but PennFuture wants assurances the funds will go only toward
protecting public natural resources.

Private
Resources

Although PEDF
is ostensibly about the use of money from publicly owned natural
resources, Moody expresses concern about what may be in store for the
development of private oil and gas reserves. He observes that the majority
opinion included a discussion of the ERA’s legislative history, and despite the
limitation of the text of the ERA to “public” natural resources, the court
noted that the principal drafter of the amendment “opined that the trust
nevertheless applied to ‘resources owned by the commonwealth and also to those
resources not owned by the commonwealth, which involve a public interest.’”

“We can
only wait and see what ‘all agencies and entities of commonwealth government,
both statewide and local,” will do with this expanded, nontextual scope of the
ERA and how courts will analyze state and local regulation of private property
under this approach,” Moody acknowledges.

Garber
and Lucas write that some of the issues surrounding application of the ERA may
be resolved, or at least clarified, in Gorsline v. Board of Supervisors of
Fairfield Township, which is pending before the Pennsylvania Supreme Court.

A local zoning board in Gorsline granted a
conditional-use permit for a well in a residential-agricultural district, but a
Lycoming County judge reversed that decision, relying on the Robinson
Township case, published reports indicate. In September 2015, the
Commonwealth Court reversed that ruling and determined that the record did not
support the trial court’s conclusion that the proposed use was incompatible
with uses in an R-A district or that such uses would cause environmental harm.
The Commonwealth Court noted that the operator’s evidence before the board
showing compatibility was uncontradicted. The Supreme Court heard oral
arguments in March.

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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